Stock set to rise after Home Depot, Wal-Mart report profit; wholesale prices inch higher

By Stephen Bernard, AP
Tuesday, August 17, 2010

Stock futures rise on earnings, economic reports

NEW YORK — Stocks were set to rise Tuesday after reports that showed wholesale prices rising for the first time since March and a slight improvement in the weak housing market.

Better-than-expected earnings from Home Depot Inc. and Wal-Mart Stores Inc. also gave investors a reason to buy stocks.

Economic reports in recent months have almost wholly pointed to slowing growth. Weakening data has led some investors to worry that the country could fall back into recession, so reports indicating modest improvements provides reassurances that the economy is still expanding.

The Labor Department said prices at the wholesale level rose 0.2 percent last month, which lessens worries about deflation. It was the first rise in prices since March and matched expectations of economists polled by Thomson Reuters. Excluding volatile food and energy costs, the index rose 0.3 percent in July, more than the 0.1 percent growth predicted by economists.

With fears of a so-called double-dip recession growing, there were concerns that prices and wages would start to fall as well. That, in turn, would limit corporate earnings and keep companies from ramping up hiring. High unemployment is considered the biggest obstacle to a strong recovery.

The Commerce Department said construction of new homes and apartments rose 1.7 percent in July, but applications for building permits fell by a higher than expected 3.1 percent. Building permit applications are considered a good gauge of future activity.

Home sales have struggled to regain momentum after a home buyer tax credit expired at the end of April. So signs of stabilization in the market are considered somewhat positive after the sharp declines that followed after the expiration of the tax credit.

Ahead of the opening bell, Dow Jones industrial average futures rose 55, or 0.5 percent, to 10,328. Standard & Poor’s 500 index futures rose 7.60, or 0.7 percent, to 1,084.70, while Nasdaq 100 index futures rose 10.50, or 0.6 percent, to 1,830.50.

Stocks rose slightly Monday, ending a four-day losing streak that was largely been driven by worries about second-half economic growth and the Federal Reserve’s more cautious tone about the pace of the recovery. The index has dropped 3.7 percent during that stretch.

Home Depot followed fellow home-improvement retailer Lowe’s in beating earnings expectations. Home Depot, as Lowe’s did on Monday, modestly cut its revenue forecast as shoppers remain cautious about spending amid high unemployment. The company also raised its earnings forecast because of share repurchases.

Aside from better-than-expected earnings, Wal-Mart raised its earnings outlook because of continued cost-cutting measures and strong global growth in China, Brazil and Mexico.

Wal-Mart shares rose 43 cents to $50.84 in pre-opening trading. Home Depot rose 67 cents, or 2.5 percent, to $28.05.

Meanwhile, Potash Corp. of Saskatchewan Inc. rejected an unsolicited takeover bid from BHP Billiton Ltd. worth about $38.49 billion, or $130 per share. Potash, a fertilizer producer, said the bid undervalued the company.

Merger and acquisition activity is considered a positive sign for the economy because it means companies are betting the economy will grow in the near future. The rejection of the deal also means that Potash is confident the company is worth even more than the asking price because it sees growth as well.

Shares of Potash surged in pre-opening trading after the company rejected the offer. They rose $32.04, or 28.6 percent, to $144.19.

With investors looking to buy stocks, bond prices fell. The yield on the 10-year Treasury note, which moves opposite its price, rose to 2.61 percent from 2.57 percent late Monday. Its yield is often used to set interest rates on mortgages and other consumer loans.

Overseas, Britain’s FTSE 100 rose 0.9 percent, Germany’s DAX index gained 1.1 percent, and France’s CAC-40 rose 1.1 percent. Japan’s Nikkei stock average fell 0.4 percent.

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